The retail markups are outrageous. Walmart is not the cheapest around. Go to a super dollar store and the you find the exact same crap for 1.00 vs. 3.99 or 4.99 at walmart. Selling at a 1.00, The average gross profit in these super dollars is around 50%. It's not the Chinese getting wealthy off this junk, they're marking up very little over cost. The real markup comes at the retail stores. Now as for the main thread. It can be argued, based on the above profit margins, that Chinese yuan pegged to the USD is actually holding inflation down in the US(after all massive amounts of $ printed past few years, inflation should be much higher, even after adjusting for energy and food ). So a free floating yuan = higher inflation since the cost of goods for US companies will be higher. Infact a free floating stronger Yuan Benefits China, they need to import raw material to build up their infrastruture. And a stronger yuan benefits chinese companies that cater to their internal economy at the expense of their export oriented companies.
Look, obviously there are pros and cons to each side. Also rather obviously is that if China were going to be helped by a reval, they would simply just do it. There are scores of economic think tanks that do nothing but go over just what a reval will do - to both sides. We net surfers at Elitetrader aren't going to come up with a jewel they missed.
they did not miss this jewel. their finance ministers realize and agree that the floatation of the yuan will help out china in the long run. switching a pegged closed currency system that is used by one of the largest economies in the world and over 1 billion people to a free floating system is no small task. they are drafting a plan and making sure it is foolproof to make sure currency raiders dont manipulate the yuan (see: thai baht, 1997/asian financial crisis). and yes, there are obviously other concerns they need to address besides FX speculators. when they are READY, they will float the yuan. it's not like the USA floated the dollar overnight. the yuan will appreciate versus the dollar when it floats. however, the chinese govt will probably limit the initial appreciation to 3-4% tops until they are ready to let it appreciate more. i thought about investing $10K in the yuan (you basically go to china and get $10K in yuan) but i determined it really isnt worth my time to make only 3-4% in the next year or two. i can get 3% investing my money at ING. plus i dont want to wait to see how long it takes for the yuan to appreciate more. i dunno, maybe i will pick up $1K in yuan just for the hell of it and see where it is in 5 years.
The most interesting prediction I've heard is that a rise in the Yuan will also cause an upward spike in all other asian currencies as they are more likely to trade with china's currency than the US. The ensuing huge drop in the US $ will cause foreigners to dump US$ assets including debt, which will send interest rates spiking upward, crashing the housing market and the economy along with it. But who knows
On a closer look, you are absolutely right. I stand corrected... thanks for the heads-up. Ironically, I myself said in the original post, "Note that the USD/CNY NDFs trade in Hong Kong on the OTC market, so you'll find some variation among dealers." Of course, ICBC is a Chinese domestic bank. I did come across a few other relevant sites in my search, but none of them were in English. I wonder whether this source, albeit flawed (these contracts are settled in CNY, not USD) might still serve -- by watching the forward premium over spot -- as one indication of the market-assigned probabilities of Yuan revaluation at various points in time?
There is so much to be said about the revaluing of the Yuan and its impact on the USD, Asian Stocks, Global Bonds etc. Recently it comes out that the Bush Administration believes they will revalue in August and JP Morgan predicts they will appreciate 20-30% in the next 2 years. There is a great site I found for all the news and analysis on this but I dont know if I can post the link here. Ill try but if its not here just e-mail me and Ill give you the link. Here it is: chinarevaluation.com
its a joke. the chinese aint gunna dance to bushes tune. why should they? amercia is a dying economy. soon the chinese will consume more than usa and usa will have to do what ever china tells it to do - in about 20 years from now.
No. Just an apparently reputable source in English I came across while searching for Yuan forward quotes online.